Making Money By Meddling Mutual Series manager David Winters loves to buy stock on the cheap, but his work doesn't end there. He also tries to get companies to make changes that will boost their stock price
(MONEY Magazine) – David Winters of the Mutual Series funds likes to invest in well-run companies. But what he's really after is a dirt-cheap investment, so his funds are also sprinkled with oddities like the bonds of distressed or bankrupt firms. Sometimes he'll even buy a troubled company and tell management how to fix it. Anything to get an asset cheap.
Winters inherited this strategy from his predecessor, the legendary Michael Price. It's not for all tastes: Flagship fund Mutual Shares, which Winters took over in 2001, lagged the S&P 500 badly during the late-1990s boom. But thanks to gains in the bear market that followed, it is an annualized four percentage points ahead of the index over the past three years. Winters' other funds, Mutual Beacon, Mutual European and the global Mutual Discovery, are similarly conservative and contrarian. "What we do is quite different from 99.9% of Wall Street," says Winters, who spoke with Megan Johnston in July.
Q. You sometimes try to make changes at companies you buy. What makes you think you know how to run a business better than its managers?
A. We study lots of different businesses and see how things are done well. We don't tell companies how to run their business, but we often have suggestions that may improve their operations.
Q. Can you give us an example?
A. One we're really quite pleased about is Meredith (MDP), which publishes Ladies' Home Journal and owns television stations. We suggested they split the company into publishing and broadcasting. They didn't. But I think the company has focused on a lot of the issues we've brought up-the TV stations are better run now. The stock has gone from about $30 to the mid-$50s. Meredith didn't have a long list of fans, but in a time when other media stocks have been horrible, it's done beautifully.
Q. Is there a company you are trying to change now?
A. Potlatch (PCH), the forest-products company. Managers were concerned about the possibility of a hostile takeover, so they put in a phased voting structure to give longtime shareholders more say. The performance of the company hasn't been excellent. The voting structure has entrenched its management. We talked to them. We wrote letters. Ultimately we put in a proposal to change the structure. [Winters' proposal was rejected at a recent shareholder meeting, but he's still in the stock. Potlatch says phased voting ensures that investors can get fair value for their stock in a takeover.]
Q. What's a company you like that's already well run?
A. Nestlé (NSRGY). You're paying 11 times earnings for its core food business. We're starting to see food inflation, and Nestlé has pricing power. We just wish they'd buy back their stock. We've told them: "We love you very much, but we'd love you more if you bought back stock."
Q. Mutual Shares is 18% in cash. Is it hard to find bargains now?
A. There are some cheap stocks left but not many. We're finding them in Europe and in industries that people don't like. Our largest equity position is British American Tobacco (BTI). It has a dividend yield of 4.4%, it buys back its stock and it has good management.